Improperly using client funds
The Investment Industry Regulatory Organization of Canada’s (IIROC) biggest financial penalty levied against a British Columbian in 2015 was the $195,000 charged to former Vancouver-based Manulife adviser Robert Lewis in November for a series of infractions.
That penalty included a $175,000 fine plus $20,000 in costs, although, as of March 4, Lewis had not paid.
Lewis admitted in a settlement agreement that he contravened IIROC’s dealer-member rules and his own firm’s policy when he prepared tax returns for his clients and charged a fee for that service without formally notifying or seeking written approval from Manulife.
Providing those services netted Lewis $58,000 in fees between 2008 and 2011.
Lewis was also sanctioned for misusing his clients’ money.
In some cases, he provided money from his own credit union account to help clients who were short on funds. But, in at least 40 situations between 2008 and 2012, he took money from clients’ accounts and put it into his own account.
Lewis claimed he was transferring those funds as payment for investment counselling services.
In all situations he left Manulife and his clients in the dark.
“The respondent did not obtain the clients’ consent to charge the fees and did not obtain the clients’ consent to transfer money from their credit union accounts to pay for those fees,” noted the settlement agreement. “The clients say that they were not aware that any fees were being charged.”
Lewis’ final infraction occurred between 2008 and 2012, when he convinced clients to pre-sign blank forms on the understanding that he would use the forms only after receiving clients’ verbal instructions.
He continued this practice even after his firm’s compliance department had warned him in or around June 2010 that the possession of pre-signed client forms was prohibited.
Manulife fired Lewis on or around April 12, 2012.
He then found a job at Raymond James Ltd., although he is no longer with that firm.
In addition to Lewis’ financial penalties, he is prohibited from registration in any capacity with IIROC for five years.
Insider tipping and trading
Sharing confidential corporate information so another person can buy or sell securities based on that news is an example of fraud that, instead of having a single victim, undermines the entire system of public stock markets.
But insider information stock trades abound. Sometimes the relationship between the tipster and the securities buyer is so close that it makes securities officials’ work easier.
The case involving Robert Frederick Weicker and his wife, Amina Umutoni Weiker, is a good example.
A British Columbia Securities Commission (BCSC) panel in April 2015 found that Robert Weicker, who was a consulting geologist with Geo Minerals Ltd., was in a special relationship with the company and had access to undisclosed information that was likely to have a positive impact on the company’s stock price.
The panel also found that Weicker had passed the information to his wife.
Amina Weicker then bought shares of Geo, which was then trading on the TSX Venture Exchange, before the information became public. Once the information was made public, Amina Weicker sold the shares and made approximately $40,000 in profit.
The BCSC panel concluded that Amina Weicker broke securities laws banning insider trading and that Robert Weicker breached securities laws that prohibit revealing information about a public issuer to outsiders.
The panel ordered that Amina Weicker and Robert Weicker be prohibited from buying or selling securities or exchange contracts of any issuer with whom they are in a special relationship for two and three years, respectively.
The panel ordered the Weickers to pay the BCSC the $40,000 profit from the misconduct. It also ordered Amina Weicker to pay a $40,000 administrative penalty and Robert Weicker to pay a $60,000 administrative penalty.
Wash trading is a stock manipulation that occurs when one person is both the buyer and seller of a security.
Many people won’t buy a security if it’s thinly traded because of its perceived limited salability.
Wash trading therefore gives them the false confidence that many people are buying and selling the stock.
The highest-profile recent example of wash trading resulted in Vancouver resident Gordon Eberwein agreeing to a settlement on March 21.
That agreeement required Eberwein to pay the BCSC $15,000 and prohibited him from trading securities for four years.
Eberwein’s trades were in Ackroo Inc. (TSX-V:AKR), which is traded on the TSX Venture Exchange.
He held four accounts at BMO InvestorLine Inc., three of which were in his name; one was in the name of his private construction company.
Eberwein had sole trading authority over the four accounts. Between February 7, 2013, and May 8, 2013, he made 37 wash trades in Ackroo shares through the four BMO accounts.
He later moved the four accounts to RBC Direct Investing Inc. and stepped up his wash trading. Between September 10, 2013, and December 13, 2013, Eberwein made 53 wash trades in Ackroo shares through the four RBC accounts.
He acknowledged to the BCSC that his actions led to a misleading appearance of trading activity in the shares of Ackroo.
Often, when people use wash trading, they select thinly traded securities that are then manipulated with each wash trade.
A sequence of slightly higher buy and sell prices helps the stock price steadily rise with each purchase and sale. As that happens, more investors get interested in the stock.
Often wash traders simultaneously spread rumours about the stock’s quality and provide tips to encourage people to buy it.
Once the investors have bought into the company and the higher price stabilizes, the wash traders sell their shares.
Pump and dump, another stock manipulation technique, involves the promotion and pumping up of the price of a share that’s then sold, or dumped, at a price peak.